two or three days of the month. This is in no sense a restriction of the November formula since it would plainly be a quite unwarrantable distortion of language and of the intention of that formula to seek to treat as purely accidental a breach that could reasonably have been foreseen or prudently provided against. This being so, we frankly fail to understand how you can ever have regarded the November formula as entitling Hong Kong to expect that HMG would accept as purely accidental a breach that could have reasonably been foreseen or prudently provided against.
6. As to foresight and to prudence in relation to the working of the present guarantee, the maintenance of a minimum prudential margin on the lines described in para 3 of your Tel No 467 of 27 April would obviously reduce the risk of future breaches. This appears to be the practice followed by most other participants. Plainly, the adequacy of any particular margin in this respect will vary inversely with the degree of surveillance that it is found on other grounds appropriate to exercise over the recent portfolio.
7. You question whether it is necessary that the terms of the guarantee be so framed as to require purchases of sterling in certain circumstances. The answer is that the guarantee
continues to be specified for all participants in terms of MSPs set out at the outset; provision is accordingly needed for the maintenance of MSPs; and in administering the arrangement, HMG could not justifiably permit suspension of observance of this key provision by one participant in isolation. Other guarantee arrangements could obviously be conceived which would better suit the circumstances of
individual holders in particular respects. But we judged, and we continue to think, that the present arrangements (incorporating a substantial cut in MSPs) is the most appropriate in all the circumstances.
8. We do not therefore accept your view (in para 5 of your telno 594) that Hong Kong has been unreasonably treated in this respect and can only now reiterate the sentiment of the last sentence of our telno 471 of 17 May.